Alphabeta T cells respond to peptide-MHC molecule complexes. How protein antigens are transformed into peptides suitable for such binding and the intracellular pathways followed by MHC molecules both before and after peptide association are critical to understanding T cell immunity. Using transient transfection of site-induced mutants of the invariant chain (Ii), we have found that the exon 3-encoded region of this protein is essential for binding to class II, for proper association and stability of class II alpha and beta chains, for class II transport from endoplasmic reticulum to Golgi, and for inhibition of class II peptide binding. This region appears to play the same functional role as peptide plays for class I molecules, via occupancy of the class II binding groove while still a part of intact Ii. These data imply a modular structure- function relationship for invariant chain, and explain its contributions to early post-synthetic class II behavior. Pulse-chase labelling, immunoprecipitation, and gradient density fractionation of B lymphoblasts show that class II and Ii enter early endosomes via the plasma membrane. Removal of Ii and peptide loading occur in multiple compartments that cofractionate with both late endosomes and early lysosomes. Thus, class II traffics to multiple endocytic compartments, consistent with a model in which class II acquisition of different protein determinants may occur in compartments of differing pH and hydrolytic capacity. Intact extracellular proteins are usually not converted into peptides bound to MHC class I molecules, but some exceptions have been reported. To better define a possible exogenous to endogenous pathway of antigen presentation, we have established a model system in which phagocytic stimuli promote class I presentation of exogenous soluble protein. Our studies suggest that this does not occur due to induction of a special vesicular to cytoplasmic transport mechanism, but may instead reflect the rare breakdown of the phagosome membrane and entry of the antigen into the conventional cytoplasmic class I processing pathway. These data are of significance for vaccine design, and may also bear on CD8 T cells responses to some pathogens that normally reside in endocytic vesicles, but occasionally escape into the cytoplasm.